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Cheap Talk and Burned Money

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  • David Austen-Smith
  • Jeffrey S. Banks

Abstract

We augment the standard Crawford-Sobel (Econometrica 1982) model of cheap talk communication by allowing the informed party to use both costless and costly messages. The issues on which we focus are the consequences for cheap talk signaling of the option to use a costly signal ("burned money"); the circumstances under which both cheap talk and burned money are used to signal information; and the extent to which burning money is the preferred instrument for information transmission.

Suggested Citation

  • David Austen-Smith & Jeffrey S. Banks, 1998. "Cheap Talk and Burned Money," Discussion Papers 1245, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1245
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    References listed on IDEAS

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